Malaise or Truth?

- It's not what you look at that matters, it is what you see.

- Henry David Thoreau

Sept./Oct. Pullback

In the stock market, the Fall retracement in stocks is almost a given. If you look at the close last Friday, you may not believe the theory. However, if you look at the chart, the Industrials fell 2,000 points from its high in September and ended down for the month. The S&P 500 also fell for the month, although just 14 points; it bounced up hard entering October. The two leading indexes had steady volume. 

Nasdaq tells a different story. It was up all month and continues rising into October. The small cap, Russell went the other way. It was down from the beginning of September and fell all month, but the volume was very low. No conviction.  

The Transports had a rough month. It too was down all month and like the small cap index, it had low volume. Together, the indexes show some malaise, but the Bulls remain in charge.

Indicators

The Fed has another meeting at the end of the month (27th Oct.). There is another Wall St. aphorism, "Buy the rumor, sell the news." The rumor on interest rates changes on a daily calendar. We pay little attention to heresy. Facts speak to us as well as the charts. The big announcement from the G-7 about diesel and oil is news, but you have to understand the big picture. The group will offer the market (world) 100 million barrels of both diesel and oil. However, this is to be spread out over four months and diesel will not enter the market for probably another 20-days. So, how did this effect the market? Brent rose to $102 on Friday. US crude, initially fell, but recovered to close at $91. The two oil commodities are in a rising price channel line.

For perspective, consider this point. The world consumes over 100 million barrels of oil on a daily basis and around 30 million barrels of diesel. The news makes headlines, but it will make no difference to rising price and more inflation.

Market Disconnect

We have stated many times in past pieces that the stock market no longer reflects the US economy. The latest stats on our economy says it grew at 2.2% in the 2cd quarter. This is deceiving. The formula uses price to determine value. Inflation causes prises to rise and thus, it appears that the economy is growing. What should be included is the misery index. However, this index of inflation and employment has been massaged. We do not believe the inflation numbers from the BLS. Unemployment rose one notch to 4.2%. 

Back to the disconnect: A report on jobs last Friday was a big failure. The market expected 90,000, but it received only 29,000. This is a big miss. So, what does the market do? It rose and the dollar for the week strengthened to close at 101.9. This is not logical. We already knew the market is not logical and now, we see this as another proof there is no connection between Wall St and Main St...Peace.